Welspun Corp Limited analyst Q&A

Thank you very much. We will now begin the question -and-answer session. Our first question comes from the line of Nishant Vass from 360 ONE Asset Management. Please go ahead.

Just a couple of clarifications. Just on the data center piece, can you double click more on The U. S. Demand? Obviously, there are more and more data centers in U.S. that are on-site natural gas generated from a power standpoint. So , are you seeing that order come to you? If you can give more details in terms of what is the nature of this order that you received from data center as a direct order?

No, so, Nishant, thank you very much. First and foremost, this order, what we have received, is not a direct order from a data center. This order is an order to a m idstream company. We have to understand the value chain. The value chain is that there is a gas, which is there in the Permian Basin. That gas has to get transported to the consumption center through a pipeline. These pipelines, as you know, are being put through a midstream company. Earlier, those midstream companies were all focusing on moving that gas to the Gulf Coast for LNG export. Now with this big new demand coming up for data centers, they are also diverting this gas pipelines from Permian to wherever these data centers are coming, which is in Midwest or Arizona or in Texas or in Louisiana. So , there is a huge shift on newer pipelines which are getting created and from the same source, which is the Permian.

And so just getting a better understanding of this because gas-based data center demand is going to be the primary driver of incremental growth considering other segments take time in terms of ramp up, potentially nuclear and other sources. On that acco unt, considering you have a dominant position in the market, do you think this can be a significant source of incremental growth for you? And if that is the case, then what are the thoughts in terms of capacity creation more for getting to supply for this data center demand?

So, first and foremost, we believe this is a paradigm shift which is happening within the market, U.S. market, number one. As you rightly said, we are definitely in the pool position at this point in time, being present there and having one of the largest capacities. Third, it is also very clear that this recent order, which is a testimony that, this demand is actually not on a piece of paper. It is actually getting crystallized. This is happening on the ground. I think so this is going to stay for a fairly, fairly long time because the type of data centers which are being discussed and their complete dep endence on natural gas. So , we have to understand either they have an option to go to a grid, which is a very weak network and if it is not a very extended network in America and not too very reliable network. So , they have no other choice but to go to this captive power plant, and those captive power plants have to be fed to this gas. The nuclear part of it, I think so it is still on a design state. It is going to take some time . We have still not seen any prototypes coming up on the ground. So, it is go ing to be a long haul before they will be powered to a nuclear energy. So till that time, which could be 5, 7, 10 years, we really don't know. Till that time, if this data center's demand continues to grow, they will all be powered through the gas. So , we see a very clear directional shift which is happening into that particular market. And apart from exports to LNG, this was going to be the new consumption driver. Coming back to our capacity, Nishant, as you know, we have one of the largest capacity, number one. We have already announced adding our capacity. We are putting up a new longitudinal plant out there, which we have already announced that. It is already goi ng. It is only a work in progress. We should be up and ready sometimes next year. And this plant, over and above our existing plants, these two plants put together would be catering to this huge demand of energy, new energy, which is demand which is coming up into the U.S. market.

And one last question on this. From a profitability standpoint, I presume this also will be similar or better than the existing in the existing projects in the U.S.

Fair assessment. Fair assessment. It is a very fair assessment to make, Nishant. I think so, they are, but profitability is also a factor of steel and this, that. But I would say that these are fairly profitable orders. And more than the profitability, I think so, the trust what the customer shows on to us with respect to our executional capabilities, that is more important for us. And I think so, by getting all these orders of almost $700 million odd orders for and large ly, one of them happens to be from a data center is a clear testimony that Welspun positioning into the American market.

Our next question comes from the line of Vikash Singh from ICICI Securities. Please go ahead.

Sir, my first question pertains to our guidance. Why haven't we increased our FY '26 guidance considering that the second half is usually pretty strong for pipe companies? Your initial commentary also suggests that. And is it because we would be ex pecting, we are also exp ort orders from India would have been exhausted and that is why we are expecting second half to be a little bit weaker this time?

Vikash, guidance is a factor of our order book and its execution al timelines. I may have orders expanding over a couple of years, but all those orders have to be delivered into a particular time line. So, when we factor all those things, that which order from which mill, from what location, to which customer, in what tim e line, I think so all these component becomes the fact of our guidance. And, accordingly, we have given the guidance. So, you are right. The H2, the second half of the year is definitely historically has been better than the H1 part of it, and that is what gives us a reasonable amount of confidence that once we have already received, we have all almost achieved our mid-year guidance, I am sure there is no reason that why should not we be able to accomplish or exceed the guidance given for the full year. But are we going to change it drastically? The answer is no. Because there are certain orders which have already been factored for, and they need to be executed in time. This question will become more relevant , Vikash, for the next financial year, when we would have, when we will sit down and finalize the business plan for the next financial year, keeping all the pending businesses in mind and how we are going to execute that. Second, by next year also, we would have additional capacities which will come on stream. And to that extent, as I said earlier, we will see a growth in volume, growth in revenue, and also growth in margins and which will mean growth in guidance as well. So , that is how we would like to play around, Vikash.

And sir, in terms of our state of the order book between India and U.S., just wanted to understand that U.S., we know that we have a visibility now till FY '28. But how we should look at the India visibility, if you could give us the orders book split? And by when you are thinking that the market would start turning around the green shoots in the water space?

So, right now, as I said, we have almost a consolidated order book of close to exceeding 1.25 million tons between India and U.S. So for U.S., we have a clear visibility for at least more than two years. And for India, depending on the various business, for the water businesses, typically, the visibility is for, let's say, one quarter or more. But for our signature, LSAW business, which is the export business, we still have a visibility of more than a year. So, we have a very, very strong qualitative order book, both in the water sector as well as for exports at this point in time. And to your third question , that how the visibility also for our order book, both for exports as well as for water, I am sure that it looks very promising. Water, as I said earlier, we would see a lot of traction coming up starting the next financial year because a lot of fundamental issues with respect to cash flow and funding and this and that would have got sorted out. There would have been some very large projects in the water sector which would have got awarded. So , the fund availability with a word of large contract, I think so that fundamen tally will take care of the water sector. And on the export side of it, which is where you make your maximum money, we are seeing a huge traction at this point in time. We already have a very comfortable order book. But as I see the visibility, the pipel ine of the orders, and what my teams are discussing, it gives me a clear comfort that next year could be even better.

That's all from my side.

Our next question comes from the line of Sailesh Raja from B&K Securities. Please go ahead.

Sir, congratulations on delivering an excellent performance in 2Q. Sir, with planned capacity addition in HFIW and the new DSAW in the U.S., so is this expansion decided by us initially primarily driven by seeing the long-term market opportunity o r the push came from key customers like TC Energy and Kinder Morgan? The reason for asking this question, if there is a specific customer that demand, does that enable faster utilization ramp up once the facilities are operational? And since you have pointed out that we have received order from data center segment that is roughly around Rs. 6 ,000 crores, and also, I just wanted to know this is pertaining to which type of type, DSAW or LSAW? Because if we do that calculation of 6,0 00 ton, it comes around 3.75 lakh t ons. Just wanted to know if you can clarify on this.

So, to your first question, that what was the genesis for our HFIW and L SAW expansion? Sailesh, you have to understand that we are present into that market for the last almost 20 years now. We are one of the largest players in that particular market. We have an extensive relationship with all the existing customers, the midstream customers, what we have. We have been absolutely focused in terms of that w here, how is the growth coming, what is that we can do to help capture that growth. At an appropriate time last year, we felt we saw that there is going to be a huge uptick in demand, which is going to happen. The demand, we knew, will happen in more in data centers, LNG, and LNG export segment. And that is the reason, key reason we went ahead, wanted to be stay ahead in the curve, and went up with our expansion for our putting up a new LSAW plant. What happens afterward, once these pipelines are being done, the large diameter pipelines are being done, the small diameter pipelines, distribution network also get created. That is the nature of the business. And to that extent, keeping that in mind, we took a preemptive step of also putting up a upgraded HFIW mill in place. So , it was not a specific customer backed demand basis which we took a decision. It was a fundamental shift which we saw , which is likely to happen on the ground, and basis that we took that decision. And I am sure that you will agree that that whatever we took in terms of expansion were the right decision. So, our capital allocation was very, very clear and judicious. Number one. Number two, with respect to this, the new project, the new order what we have got, it is largely a spiral pipe at this point in time, but it also has a component of a longitudinally welded pipe. And as our mill is going to come up there, we would also be able to service that requirement, this confirmed requirement out of that particular mill. So , it is a blend of both at this point in time.

So, is it possible to give the mix? So, basically, I want to know if this DSAW will be operational by FY '28. So, how long will it take to seize that capacity?

DSAW will be operational by '26, by next year. No. Who said '28?

No. So, FY '28, sir. I am talking FY '28.

Okay. We should see two years till FY '27, then FY '28.

We can fill it by FY '28 or second half of FY '29?

We see a demand. I mean, today, when we look at it, I think so that demand, which is going to come up both from LNG as well as our data centers and LNG terminals per se. And I am not counting offshore for the time being at this point in time. So, these because from out of the four, I am only counting demand from these three functions, which is LNG export, data center, and the LNG terminals per se. I think so we are very confident that this brings a very clear visibility and we should be able to put a maximum utilization to our DSAW mill.

Because we are deploying around Rs. 1,100 crores here, and effectively, we can produce 2.6 lakh tons. And you always say that in U.S., we will do conservatively 250% of EBITDA. So, if we back calculate, it gives only two, three years of payback, actually, including working capital in procurement. Is this right?

Salish, these back of the f orm calculations, you guys are good at that. What we see is the fundamentals of that. For us, fundamentally, that market is strong. It is going to grow. It is going to stay strong for next couple of years. And we being present there, there is no reason that we should not be leveraging out of the whole situation.

At this point in time, no, Salish. At this point in time, we have factored for the demand and what could be the share we would like to service from that. To that extent, we have already taken all the steps. At this point in time, we are not looking at anything beyond this.

My last question, when we commissioned the DI line, the strategy was to focus both domestic as well as exports market given our proximity to the port. However, we have not exported so far, and domestically, we are seeing deferment in government CAPEX. So, despite this, we have been able to ramp up our volumes , whereas if you see one of our peers, they have curtail ed production because of delaying payments from the contractors. So, in this context, on worst case, if the domestic situation continues like this, so how do we plan to balance domestic and exports going forward? Also, along with even in our presentation , it is mentioned that there is an anti-dumping investigation initiated by Saudi. So, what is our export strategy for DI and a broader plan for DI business?

So, Sailesh, first and foremost, the DI market has been into stress. There has been no doubt about it. But we continue to have a very strong order book at this point in time. It is almost close to 300,000 tons of order book what we have. It is a confirmed order book. So, to that extent, we do not see sort of an immediate pressure at least in terms of volume. There will be a pressure in terms of pricing, but not in terms of volume, number one. Number two, the fund crunch situation is not going to stay in perpetuity. As we are very confident, it is just a matter of time, a matter of one more quarter, and things has to improve, and they will improve. There is no doubt about that. Third, we have already started exporting DI pipes in some small scale, and the initial response what we have got from the market in which we have already exported is extremely good. So, we will definitely ramp up our portfolio for exports out of India at this point in time and in days to come. But we will have to first see that currently, the percentage would be less because our domestic demand in order books is strong. And if for any reason it goes down, which I do not believe, then we have also parallely started working with the export market, seeded there. And if we have to ship, we will be ready to ship that. To your last point, KSA has started the anti -dumping duty investigation. That is a fair point. Yes. They have already started doing that. You also must keep in mind that Welspun’s DIP facility in KSA will also come up by March of 2026, and these anti-dumping investigations will definitely be of significan t help to our local entity, our local production facility, which we are setting up in Saudi Arabia. So, we are sitting on both the sides . We see a strategic advantage having with this investigation because it will help us stabilizing our Saudi entity much expeditiously and faster.

Mr. Raja, I am extremely sorry to interrupt, but can you please rejoin the question queue for your follow-up questions?

Yes.

Our next question comes from the line of Sneha Talreja from Nuvama Wealth Management . Please go ahead.

Couple of questions from my end. From OPVC and Sintex channels, could it be possible to share any order book number on the OPVC side? That is first. And secondly, what I want to understand is in the growth rate of Sintex, while you have mentioned that you have done roughly about Rs. 310-odd crores on Sintex first half number , what is your growth target here? Because as far as I understand, last year was somewhere about Rs. 600 crores to Rs. 650-odd crores is the total revenue size. Are we seeing any slowdown here in case you can just quantify that what is the growth likely to be this particular year only for the Sintex overall business?

So, Sneha, thank you very much. First, on the OPVC side, as I said, that we have now achieved, we have started the commercial production. We have received all the statutory mandatory approvals and accreditations, which is required to supply pipes into the domestic market. And, also, we now have orders from multiple stakeholders on a pan India basis for which we will be starting servicing sometimes later this , early this month or from next month. These are at this point in time, ye s, I am not saying that they are huge quantities of order, but they are decent quantities of order at this point in time, what we have. But what is more important is that it is spread over at four or five locations, which means that the geographical acceptance of this pipe is what we wanted is now gaining traction. At this point in time, what we are not following or rigorously pursuing is the volume part of it, but a wider gain and acceptance of OPVC pipes on a pan India basis. I think so that is the strategy we have been working on. And I think so , to that extent, the efforts what have been made are showing positive results, number one. Coming back to your question on Sintex, I think the Sintex, our Sintex water storage division has been doing extremely good. As you know, it is a business of all about the distributor, dealers and influencers. That band, as it expands, the business expands on its own. The team, I think so, have been doing a phenomenal job in making that expansion. Further, we are investing a lot in terms of branding and marketing activities and taking it directly to the consumers, making them aware abo ut the products, what are bringing. I think so this expansion, this is gaining a lot of attention and attraction. You know, the market has been slightly subdued in the recent past. There has been a fund flow crunch into the overall market. We are all privy and all are aware of it. I think so, to that extent, they are also slightly impacted, but it is just, you know, as the fund flow into the markets in the water sector, everything will get improved. I am sure that this growth rate will further accelerate from here. Sintex is a, as I said earlier also, Sneha, is a work in progress. We are absolutely focusing on building absolute solid ground foundation. We are in no hurry that we want everything yesterday or tomorrow. No. We want to bring foundations. We want to make clear foundation with respect to the quality, brand, process, dealer, distributor, influencer, digital, everything. You know, we want to change the game in this particular market. It takes its own time. We will be investing that particular time and energy behind it because we see that is what is going to create a long - term intrinsic benefit for this organization.

That's helpful. And last thing, you also mentioned about Nal Se Jal scheme coming back, and Amrut 2.0, you have been really positive on about government spending coming back. And you are also present into DI, OP VC, all sort of pipes, which is where you actually see the benefit coming majority to ? Will it be DI? Will it be OPVC? Will it be HDP? Where do you see incremental flows of the water supply coming to any categories that you would want to highlight here?

Sneha, this will be across all the categories. See, H DP will have a rol l up to a particular size. OPVC will have a roll beyond that size, and third, DIP will have a role where OPVC will stop. So, if you see in the whole value chain, on the lower diameter, it will be HDP. In the smaller diameters, it will be OPVC. And in the medium to bigger diameters, it will be DIP. All three of them are a part of the same value chain, and we have been present into all three of them, we are covering the entire value chain. So, once the Nal Se Jal scheme funding and Amrut 2.0 funding will start trickling back, which is just a matter of time, we will see growth across all the three product lines.

Our next question comes from the line of Bhavin Chera from ENAM Holdings. Please go ahead.

Just few question. First on the CAPEX. So, we have spent Rs. 950 crores in H1. And if I see your Quarter 1 slide which you had given, so our 2 years CAPEX plans was Rs. 5,500 crores. So, roughly, what would be the breakup? Second half, how much you plan to spend and balance would be in FY '27, that is how we should model it?

Yes. Bhavin, hi, this is Percy here. I will take that answer the question. So, we had announced CAPEX of about INR 5,500 crores odd, and it was spread over three, four years, starting from FY '25. So, as you know, FY '25, you already spent close to about INR 1,000 crores, and in H1 this year also, it is about INR 950 crores. So, combining the two, about Rs. 2,000 crores is done. What is remaining is another 3,500. I think in H2 of this year, it will slightly pick up the pace, so as our Saudi and U. S. projects are moving fast , at a fast clip. So , you can expect another maybe 1,500 for H2. So that means for this fiscal year, you can expect about, I would say, 1,000 plus 1,500, so about 2.5. But our goal is…

And 1,000 is already spent last year, the 3.5, right? So pending would be Rs. 2,000 crores starting FY '27. Right?

Yes.

But our goal is, of course, to monitor the CAPEX very carefully and maintain our balance sheet in a healthy position by looking at the debt numbers, the net cash numbers as well.

Second question, just on the order book, because I think your slide says that the order book is updated till 25th October. So, U. S. order, which was received yesterday, should be added to the order because that press release also mentions order book at INR 23,500 crores. So, there looks to be some confusion between yesterday press release and today's presentation. So, what exactly is the order book number?

Bhavin, let me clarify. I think if it has added any confusion, my apologies for that. The U .S. order book coincidentally came yesterday. We had a chance to update it. This Rs. 23,500 crores order book is inclusive of the recent order, the last order what we received from U.S. My apology for this, if it has created any…

So, 23,500 includes all orders.

Yes.

And 1.2 in volume wise is equally spread between India and U.S., right?

Broadly.

And this 23,500 doesn't include Saudi Arabia orders, APAC orders. Right?

They do not. They do not.

What would be the order book there?

They have an order book exceeding for more than two years at this point in time. I think so they make separate disclosures to that, Bhavin. I am sure you are tracking that. They have a very, very robust order book exceeding two years' time and very profitable order book. You see their performance for the Q2. I think so that will give you a very clear reference as to where that company is heading for.

So, you had a share of associate profit of close to Rs. 96 crores, so that reflects very strong results from Saudi operations. So , should we expect this current momentum to continue over coming quarters? Or was there any one-off in that share of profit number of Rs. 96 crores?

My sense is that, a, this is a clear reflection of the mix of the order book what they have. See, it could be a little slightly on and off quarter-on-quarter basis, but from the quality of the order book, what we see they have, it would be fair to asses that it would be somewhere in the similar vicinities. Should be. But, of course, subject to what the product mix, if they keep on changing, you will see some more aberrations coming up on the play. But broadly, I think so, this is the way we should keep in mind.

Our next question comes from the lin e of Sunaina Chhabria from Chola Securities . Please go ahead.

The first question that I had was the line pipe order book that was given was India and U.S. combined. Would it be possible for you to give any color on the breakup between this for India and U.S. respectively? What is the bifurcation between the two?

Sunaina, thank you for joining. I think so , I did mention that this order book of 1 .2 million is fairly even restricted between India and the U.S., which means almost close to 600,000 tons at both the location. Is that what you are looking at?

Yes. I might have missed that. And just my second question is regarding this wholly -owned subsidiary that is being set up in Saudi Arabia. What would be, like, the business functionality of that?

Wholly owned subsidiary which have already set up in Saudi Arabia is for , we are setting up a plant. We are setting up a longitudinal plan t, and we are setting up a DI plan t, and it is a 100% wholly owned subsidiary of Welspun Corp. That is the whole purpose and both these plants are being set up.

Any time lines you could possibly give about them?

About what? About the setting of these plants?

Yes. The commissioning and the operation.

If you see, Sunaina, we have given a very clear project update. If you see that on the DIP side of it, ductile iron pipe facility, we are still maintaining that it should be up and running by March of 2026. And for the LSAW plant, what we are seeing there is also a similar timeline. So , both of them seem to be the fourth quarter of this financial year.

As there are no further questions, I would now like to hand the conference over to the management for closing comments.

Thank you, friends. Thank you very much for joining today's conference call. I just want to reiterate a couple of things. You know, as an organization, as Welspun Corp, we have a fairly healthy order book. We are completely focused in our growth. We have seen consistent growth over the last six quarters, and I am very sure that in subsequent quarters for the next two years, you would see both growth and improved margins. Our focus continues to be maintain profitability. You will see that we will try to maintain ROCE above 23%, 24%. We have a very healthy balance sheet. At this point in time, you see our net debt to EBITDA are less than, you know, they are almost negligible despite that all the CAPEXes we are doing, we are trying to maintain a sort of a net cash position. So, from a growth perspective, from a ROCE perspective, and from a balance sheet perspective, your company is absolutely on the right track. From the business perspective, if you see, there is a paradigm shift, as I said, is happening both in the American market, in the Indian market, and going to be into the Saudi market. All these three markets are gunning, are growing, and they offer huge opportunities. I am sure with our philosophy of core products and core geographies, by virtue of which our reach is increasing, our total addressable market is increasing , I am very sure that the company will do extremely well in next couple of years. With that, I woul d like to thank all of you once again for joining us. And if you have any questions, anything which we would have not answered to your satisfaction or you have any afterthought about it, please feel free to reach out. We will be more than happy in fullest transparency to share that with you. Once again, thank you very much for joining us today. Thanks.

On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.